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Compensation is the remuneration received by an employee in return for his contribution to the organization .

It is an organized practice that involves balancing the work employee relation by providing monetary and non- monetary benefits .

Compensation should not be a result of random decisions Instead , the result of a careful and systematic strategic process . Embedded in the process is an understanding of the basic purposes of compensation An assessment of strategic options for compensation . Knowledge of the determinants of compensation strategy , and the use of pay surveys .

The organization must provide appropriate and equitable rewards to employees . Individuals who work for organizations want to feel valued and . Want to be rewarded at a level commensurate with their skills , abilities and contributions to the organization .

Compensation serves a ( signaling ) function . Organizations signal to employees what they feel is important or the employee to focus on.. (And what they feel is less important )by paying for certain kinds of activities or behaviors and not for others . Compensation can serve as an incentive to employees to increase their efforts along desired lines

Is more than just the means to attract and retain talented employees . In todays competitive labor market , organizations need to fully leverage their human capital to sustain a competitive position . This requires integrating employee processes , information and programs with organizational processes and strategies to achieve optimal organizational results .

Successful Organizations are committed to the continued success of their Compensation Plan Such a plan enhances the organizations ability to staff core operations and new initiatives

Support employee development , recruit and retain highly qualified employees and Reward them based on heir performance and capabilities and support . The achievement of organizational goals

Is an integral part of human resource management which helps in Motivating the employees and improving organizational effectiveness . If the compensation offered is effectively managed , it contributes to high organizational productivity .

A good compensation package is important to motivate the employees to increase the organizational productivity . The lucrative compensation will also serve the need for attracting and retaining the best employees .

Unless compensation is provided no one will come and work for the organization . Thus , compensation helps in running an organization effectively and accomplishing its goals .

Salary is just a part of the compensation system . The employees have other psychological and self actualization needs to fulfill , thus , compensations serves the purpose . The most competitive compensation will help the organization to attract and sustain the best talented employees



Employee retention

Need satisfaction

Compensation systems are designed keeping in minds the strategic goals and business objectives . They are designed on the bases of certain factors after analyzing the job work and responsibilities .

Job analysis

Pay structure

Salary scales

Compensation can be direct in the form of monetary benefits and / or in th form of non monetary benefits known as perks , time off , etc. It does not include only salary ,but it is the sum total of all rewards and allowances provided to the employees in return for their services .

There are two different types of compensation management : direct and indirect . Compensation is the combination of monetary and other benefits provided to an employee in return for his time and skill . The field of compensation management provides management with the ideal combination of the different remuneration types .

Is typically comprised of salary payments and health benefits . The creation of salary ranges and pay scales for different positions within the company are the central responsibility of compensation management staff .

Medical reimbursement Special allowances

Basic salary

House rent allowances

Direct compensation



Leave travel allowances

Refers to non monetary benefits offered and provided to employees in lieu of the services provided by them to the organization . They include Leave policy , Overtime policy , Car policy , Hospitalization , Insurance , Leave travel , Assistance Limits , retirement benefits , Holiday Homes .

Overtime policy

Leave policy


Flexible Timings

Indirect Compensation


Holiday Homes Retirement Benefits

Leave travel